Natural gas for delivery in April ramped up a third straight day, supported on Wednesday by lower production estimates and a late winter blast of frigid air across the nation’s midsection.
At A Glance:
- 80s Bcf withdrawal expected
- Output holds near 102 Bcf/d
- Colder near-term conditions
In its first session as the prompt month, the April Nymex gas futures contract gained 7.7 cents day/day and settled at $1.885/MMBtu.
NGI’s Spot Gas National Avg. climbed 18.0 cents to $1.570 amid the midweek cold snap.
Production on Wednesday held near 102 Bcf/d for a second consecutive day, reaching a low for February and keeping output far from the recent record levels around 107 Bcf/d, according to Wood Mackenzie estimates.
At the same time, an Arctic chill descended from Canada Tuesday and ushered in single-digit temperatures to the Plains and Midwest on Wednesday. The conditions were forecast to drop into Texas and also spread to the Northeast by Thursday.
However, the freeze was expected to prove short-lived, with above average temperatures in the cards for much of the Lower 48 this weekend, including highs in the 60s in the Upper Midwest. Forecasts called for a mild first half of March overall.
NatGasWeather said that both the European and American forecast models called for “exceptionally warm and bearish” temperatures from March 1-13.” There “will be little subfreezing air over the U.S. for much lighter than normal demand. And it doesn’t help wind energy generation in the next 15 days will be quite strong to offset the recent drop in production.”
EBW Analytics Group’s Eli Rubin, senior analyst, is similarly cautious. “Mild weather continues to dominate the near-term outlook,” he said.
He noted that the March contract, in its final session on Tuesday, tested year-to-date lows at $1.511. Word this week from Freeport LNG Development LP that a third train at its export facility on the upper Texas coast would be offline for another two weeks added another wrinkle. It extends a month-long outage and further limits liquefied natural gas demand into the beginning of the spring season.
April futures are holding up, but momentum will depend largely on a sustained pullback in production, Rubin said. In the meantime, he said, seasonally weak storage prints could renew downward pressure on prices. Overall, the below average temperatures expected through mid-March resulted in “a projected expansion in the storage surplus versus the five-year average of more than 200 Bcf,” he said.
Storage Surveys
Total Lower 48 working gas in underground storage stood at 2,470 Bcf as of Feb. 16 – 451 Bcf above the five-year average. For that U.S. Energy Information Administration (EIA) report period, the government posted a 60 Bcf pull of natural gas from storage. That compared to the five-year average draw of 168 Bcf.
For Thursday’s EIA report covering the week ended Feb. 23, draw estimates submitted to Reuters ranged from 77 Bcf to 95 Bcf, with a median of 88 Bcf. Bloomberg's polling as of Wednesday produced a narrower range and a median pull expectation of 87 Bcf.
NGI modeled an 84 Bcf pull. That compares with a five-year average decrease of 143 Bcf.
More anemic prints likely lie ahead, NatGasWeather said.
“As a result of strong winds and warmer versus normal temperatures, the next three EIA reports will print lighter than normal draws that will increase surpluses to a massive plus-600 Bcf,” the firm said. “And while the supply/demand balance has tightened over the past 10 days, it will require colder weather patterns” to counter that trend, “which isn’t likely” after this week.
As Rubin noted, further erosion of production could also give price bulls some hope. The market is looking “for clues as to speed and magnitude of supply reductions promised by producers” such as Chesapeake Energy Corp. during earnings calls this month.
Production Uncertainty
Still, with global LNG demand expected to prove stronger beginning in 2025 with the opening of new export plants on the Gulf Coast, producers are reluctant to slow down too much.
Analyst Alex Gafford of East Daley Analytics said that, aside from a few weather-induced interruptions, production in the Northeast remains robust.
East Daley’s pipeline samples covering the Appalachian region hit a record high in December 2023, averaging 34.5 Bcf/d for the month, Gafford said. “Growth in the basin is coming from both the northeastern Pennsylvania and southwestern Pennsylvania areas of development,” he said.
In the northeastern area of the state, Gafford said supply gains have followed the start of the Regional Energy Access (REA) expansion of the Transcontinental Gas Pipe Line (Transco). Transco owner Williams began partial service on the REA project in October 2023, he noted, adding 450 MMcf/d of capacity on the Liedy line into the Transco Zone 6 (non-New York) market. The project increases connectivity from the Leidy storage hub in Pennsylvania to the northern end of the Transco system in New Jersey.
Since the start of the REA expansion,” northeastern Pennsylvania samples have increased over 800 MMcf/d,” Gafford said. “Williams plans to place the remaining 379 MMcf/d of capacity from REA into service ahead of next winter in 4Q2024, likely continuing” the growth trend.
Cash Prices Cruise
Spot gas prices climbed across the Lower 48 in response to the cold front.
NatGasWeather said that, before benign weather returns this weekend, chilly rains and snow along with cool temperatures would impact a vast swath of the country, from the Mountain West to the Plains to the Great Lakes and the Northeast.
Lebanon in the Midwest gained 15.5 cents day/day to average $1.505, while CIG in the Rockies surged 24.5 cents to $1.430, and Cove Point in Maryland jumped 30.0 cents to $1.850.
In anticipation of the cold front arriving in the Northeast by Thursday, Wood Mackenzie analyst Kara Ozgen said several pipeline operators issued operation flow orders (OFO), cautioning that the weather could briefly interrupt the delivery of gas in the heavily populated region.
These include OFOs from Columbia Gas Transmission, Tennessee Gas Pipeline, Algonquin Gas Transmission and Iroquois Gas Transmission System. “We may see more pipes issue OFOs as the system moves across the U.S., depending on how much colder than normal the temperatures will be,” Ozgen said.
Prices advanced across the Northeast Wednesday, with PNGTS spiking $1.365 to $3.160.
Additionally, the Texas governor’s office issued a disaster declaration for dozens of counties in the state’s Panhandle amid wildfires there. The National Weather Service said Wednesday the fires continued to destroy properties, force evacuations and cause smoke clouds that impacted other areas of Texas and Oklahoma. But the blazes did not appear to limit flows of natural gas or directly impact physical prices.
Instead, prices rose across all of Texas amid the central U.S. burst of cold. Houston Ship Channel jumped 22.0 cents to $1.450 to lead gainers in the Lone Star state.
